Categories: NewsPublished On: 26th June 2024

PwC weather scenarios highlight how drought and heat stress will impact the production of essential metals, minerals and food crops

By 6 min read

PWC Feature image

Photo: Pixabay

Climate change will pressure the production of mine and farm commodities by 2035 and beyond. South African companies dependent on metals, minerals and food crops need to understand and mitigate this risk to their operations.

PwC South Africa is pleased to share its sixth South Africa Economic Outlook report for 2024. In this edition, we look at the impact of climate change on the production of commodities by the mining and agricultural sectors that are essential for South Africa’s transport, construction, manufacturing and nutrition sectors, and more broadly, its green transition.

For companies that depend on essential commodities, climate change has become a real and present threat. Rising temperatures result in more drought, which can curb the supply of water for crop irrigation and agricultural processing as well as mineral ore extraction and processing. More heat stress also makes it harder for people to work outside, potentially leading to lower labour productivity and negative health impacts.

PwC’s recently released report ‘Climate risks to nine key commodities: Protecting people and prosperity’ considered these climate-related risks faced by the global producers of nine commodities, grouped into three categories:

  • Vital metals: iron ore, bauxite and zinc
  • Critical minerals: cobalt, copper and lithium
  • Key crops: maize, wheat and rice

Lullu Krugel, PwC South Africa Chief Economist, says:

“Climate change is no longer a risk. We are already living it. And the changes to global weather patterns are not just impacting the food we produce, but have a direct impact on our ability to mine the metals and minerals needed for green technologies and products that will shape climate sustainability over the next century. For South Africa and other countries, climate change will impact the availability of vital metals, critical minerals and key crops needed to produce the materials and food products essential for economic development and human well being.”

Vital metals like iron ore, bauxite and zinc are essential for creating construction materials, diverse manufacturing applications and steel production. Demand for these metals is projected to increase due to their role in the production of renewable technologies. However, according to estimates by climate risk experts at PwC US, some 61% of global iron ore mining, 62% of bauxite mining and 25% of zinc mining are at significant, high or extreme risk of heat stress by 2035. Most of the mining for vital metals occurs in surface and open pit operations. Here, heat stress caused by direct sunlight could cause substantial reductions in labour productivity and increased employee costs unless adaptive measures are used to protect workers.

South Africa uses vital metals to produce steel, aluminium and other products that underpin the country’s industrialisation and localisation ambitions. Whether these ores and metals are sourced locally or abroad, our climate forecasts point to a higher cost and constrained supply associated with these metals in the coming years. South African users of these vital metals need to understand the supply risks associated with sourcing ores and/or refined products over the next decade. For metal producers, the Taskforce on Climate-related Financial Disclosures (TCFD) framework can help assess how climate change could impact areas of their business, including the sourcing of commodities and how to respond to these risks.

Critical minerals like cobalt, copper and lithium are essential components in technologies that form part of the green energy transition. These include electric vehicles (EVs) and many forms of renewable energy generation and storage. South Africa will soon need to use a substantial amount of critical minerals to manufacture EVs. Domestic automotive production needs to transition away from its dependence on internal combustion engine (ICE) vehicles due to legislative changes in major export markets banning the sale of ICE vehicles as soon as 2030. This will require a significant increase in local battery production, likely supplied with critical minerals from elsewhere on the continent.

PwC’s climate experts estimate that 20% of global cobalt mining, 40% of copper mining and 38% of lithium mining are at significant, high or extreme risk through drought by 2035. A lack of water undermines water-intensive mining operations, including ore extraction, mineral processing and dust control. The prerogative for automotive manufacturers is to secure the future supply of the commodities that they need to support the country’s green energy transition objectives. To this end, automotive companies need to implement so-called ‘coopetition’—where enterprises engage in both collaborative and competitive strategies simultaneously—to secure input supplies like critical minerals. Globally, carmakers are collaborating with other industry players to secure critical mineral supplies for their manufacturing processes.

Vuyiswa Khutlang, PwC Southern Africa Mining Assurance Partner, says:

“Commodity producers and consumers should begin preparing for growing disruption risk. They need to enhance resilience by identifying and managing climate risks throughout the supply chain. Next, they need to capitalise on the opportunities to deliver products, services or business models that help companies and communities adapt. But doing this alone is not an option: collaboration is key. All stakeholders must join forces to shape collaborative outcomes and enhance adaptation at a policy and systemic level in order to build real resilience against the impact of droughts and heat risk.”

South Africa uses key crops like maize, wheat and rice to produce food products and to feed animals which, in turn, provide other food products. Grain-dependent products like cereals, meat and dairy account for 70% of South Africa’s food budget and 10% of total household spending. As such, the country’s food security is directly challenged by drought and heat stress. PwC’s climate experts estimate that 24% of global maize production, 35% of wheat production and 84% of rice production are at significant, high or extreme risk of heat stress by 2035. Workers in the agricultural sector are particularly at risk from heat stress, with exposure to high temperatures reducing labour productivity.

Food and beverage companies need to secure the future supply of the farmed commodities that they need to support the country’s long-term food security levels. If not, South Africa will not meet its Sustainable Development Goals (SDGs) associated with zero hunger (SDG2) and life on land (SDG15). Food producers can undertake climate change risk assessments at the site, project and supplier levels to better understand and manage climate-related risks and opportunities. From an input supply perspective, this approach supports sustainable sourcing, including promoting regenerative agriculture in the value chain.

The adverse impact that droughts and other weather phenomena have on companies can to an extent be mitigated with appropriate insurance cover. However, the increasing frequency and severity of weather events is putting insurance companies under strain, and compensating policyholders for increasingly costly damage to property and health is in some cases becoming unviable. With a growing weather-related protection gap, insurers need to understand climate risk exposure on both sides of the balance sheet, create innovative new products to turn those risks into opportunities, invest in driving the adoption of existing risk prevention solutions and collaborate with stakeholders to chart a viable path to a more resilient future.

Key content in this report includes:

  • Protecting people and prosperity: Understanding climate risk scenarios for nine key commodities
  • Drought and heat stress risks: Their impact on vital metals, critical minerals and key crops
  • Vital metals in steel production: Factories and foundries making metal products are key to industrialisation and localisation
  • Critical minerals in automotive manufacturing: Making EVs will require a significant increase in local battery production
  • Key crops in food production: Grain-dependent products account for 70% of South Africans’ food budget
  • Climate risk in insurance: Risk carriers need to turn climate risks into opportunities
  • How PwC assists our clients with business resilience decisions, helping them anticipate, manage and recover effectively from disruptions associated with climate change.

Source: PwC

0

Deel hierdie artikel.

Leave A Comment

0